As mentioned many a time before in
the past posts, economics is not something narrow in the sense that it is
restricted to demand and supply. It is an erroneous assumption that economics
is about matching demand and supply. There is no doubt economics over the last
125 years or so has moved to demand based analysis and this virtually meant the
demand curve becoming critical to the analysis. Yet, it would be only part of
the answer as the demand is correlated to the supply. Therefore, to many, in
common sense it became easier to associate economics with demand and supply. As
they say in branding, perception is more important than the truth. Therefore,
in the context of economics too, the perception often overrides the truth. Economics
is far more than demand and supply. It is about understanding of interactions
of individuals in producing the aggregate outcomes. This was something was the
nicely summarized by Thomas Schelling as micromotives leading macrobehavior. There
is an economic naturalist as Robert Frank would put it, inherent in every
behavior and the outcome of that behavior.
Behavioral economics is about the
exercise of individual choices and the deviations from the rationality in
framing and execution of choices. It is about the cognitive constraints that
emerge as barriers in decision making thus deviations from the assumptions of
perfect rationality as viewed by traditional economics. Yet, it is not about
perfect rationality but the contextual rationality or as Herbert Simon would
put it the bounded rationality. Each economic agent would seek to analyze the
costs and benefits associated with the decision making but the analysis as also
the outcomes are not unbounded. In fact they are bounded by cognitive
constraints that becomes the fundamental to the behavioral school argument of
economic rationality being wrong. Rather than being wrong it is more prudent to
suggest, the rationality is more subject to limitations rather than pure
unbounded theoretical outcome.
One would look economics as a means
of thinking. It is an approach to seeking solutions to problems. With every
problem, there exists a solution and there is ever continued quest of seeking
solutions. Economics provides an approach towards seeking these solutions. It is
the thinking that drives the agents towards these solutions. The solutions are
sought to be analyzed through the framework of economic tools. In this sense,
economics is a diagnostics toolkit. To a successful doctor, it is the ability
to diagnose that makes the difference. Similarly to an economist, it is ability
to diagnose a social or an economic problem that makes the critical difference
in suggesting the solutions. Therefore, it is the right toolkit that has to be
applied in solving the challenges at hand and this is where economics comes in
handy. Often, the solutions are thought of subconsciously yet when there is a
post mortem, one seemingly detects an invisible hand of economics.
Adam Smith might have talked about
invisible hand in terms of enhanced social and economic welfare but the hidden
hand of economics is something ostensibly intrinsic in every design. Rather than
a design of God as intellectual design school would want us to believe, it
might be that there is economic design that rules the behavior and outcomes of
those behavior. Economics unlike other social sciences perhaps, provides a set
of diagnostic tools that facilitate deciphering the outcomes. It is about
however applying the right diagnostic tool kit. Economic artistry is about specializing
in the same. It is about seeking the right answers to the problems under
consideration. There is perhaps a gift of garb in a few than enable them to
master this. The economic artists are someone who would look at the problem
very differently through the highly diversified toolkit lens of economics.
This approach has made possible
economics invade virtually every social science discipline. In fact, psychology
rather than seeking to encroach into economics something which behavioral
school would do has seen enough of economics encroaching its territory. Incidentally,
while there are economists who seek to diversify into sociological or
anthropological thinking, the two streams themselves have become strongly ‘economicised’
in the sense many economic approaches are used to understand the sociological
or anthropological problems. Many economists have moved into conquest of
sociology and would soon perhaps surround anthropology. Political science is
virtually a subset of economics these days. Yet there are many economists who believe
concepts like power are not easily malleable to the economic toolkits being
applied. Yet, there has been considerable application of economic thoughts into
political science thus contributing to its richness and diversity. History
often was considered isolated from the rest of social sciences in some ways. In
recent times, there has increasing adoption of economic tools into
understanding historical events. It might be more pertinent to view
understanding history through economic lens is about post mortem analysis of
history something to be used in forecasting the future. While there are
numerous critics of economists getting involved in policy, yet it undeniable
fact that policy would be unthinkable for good or bad without inputs from the
economists.
Law to good extent is foundational
on the principles of economics though the acknowledgment is not visible enough.
There are jurists who have used economics to build legal models. Economics has
also been used by quite a few to model criminal behavior and thus intruding
into the decoding of criminology. Economic philosophy has strong roots in the
traditional economic schools. Minus of philosophy, economics would be poorer
just that the same could be said of the reverse. As one peruses economic
studies, it proves the phenomenon is not isolated nor something to be treated in
silos. It needs a diversified treatment involving inputs from several fields. Yet,
while this happens, economics too can offer explanations in differing ways of
the problems that the other social science fields encounters. Thus as observed
in this column, the dominance of economic thinking on the domains of other
social sciences is more robust and stronger than the counterfoil. Therefore, it
would be no surprise to see economists presenting themselves across the fields
rather than the other way round.
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